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PREPAID CARD SALES MAY ERODE MARGINS

LONDON-Prepaid card sales may fuel mobile phone growth, but they also will erode already declining margins, according to a new report by CIT Research Ltd. of London.

Cards allow calling at typical consumer rates up to a fixed value and can be re-charged. The user incurs no monthly fee. The effect is an increase in the number of “low quality,” barely profitable subscribers, CIT reports.

The study, “Mobile Communications in Europe in 1997,” notes that 12.8 million subscribers were added last year, but 75 percent were low-spending consumers. The average revenue per subscriber was down 15 percent in 1996 compared with 1995.

Revenue per customer will fall even further as the prepaid market develops, said Rob Ollerenshaw, director of market analysis at CIT Research.

“These contractless services eliminate problems of credit checks and bad debt, but we think people using them will be low spenders,” Ollerenshaw said.

The number of prepaid cards grew by 250,000 a month in the last quarter of 1996, to reach 850,000 cards at the end of the year.

CIT projects the market will grow to nearly 17 million prepaid cards in Western Europe by 2001, almost one-fifth of total subscribers.

Annual revenues in 2001 are expected to be 77 percent higher than 1996 figures, but over the same period, subscribers could increase 150 percent to 89 million.

This means the overall average revenue that cellular operators can expect will have fallen by more than 40 percent.

“Many operators will find the going tough over the next decade. Collectively, they are having to invest billions in their networks and operations to cope with the demand for mobile phones,” said Ollerenshaw.

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